7th October 2013
Fund manager Schroders says it believes tapering has been delayed not dodged and is likely to start in December.
In the latest Economic Viewpoint, Keith Wade, Chief Economist at Schroders says: “The surprise decision by the US Federal Reserve to delay tapering and continue with the current rate of asset purchases appears to have been driven by concerns on the progress of labour market improvement, the impact of fiscal drag and tighter financial conditions”.
He says the team at Schroders believes that the US economy will accelerate, supported by evidence of an upswing in manufacturing and the benefit to household balance sheets from rising house prices.
“Consequently the team expects the Fed to begin tapering in December this year – in their view tapering has only been delayed not dodged,” he says.
He says there is a risk that QE could be delayed longer – a view that Wade says is reinforced by the likely appointment of Janet Yellen as chair of the Federal Reserve.
“If so, then this would challenge the team’s market views in two respects. First, it might cast doubt on whether the USD will strengthen further against the other major currencies such as the EUR or JPY, as the US would not stand out as leading the monetary cycle. Second, it would take us back to more liquidity driven markets where investors are driven by the search for yield once more, rather than looking for areas which can benefit from recovery”.